EconPapers    
Economics at your fingertips  
 

Idiosyncratic shocks and the role of nonconvexities in plant and aggregate investment dynamics

Aubhik Khan () and Julia Thomas

No 04-15, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: We solve equilibrium models of lumpy investment wherein establishments face persistent shocks to common and plant-specific productivity. Nonconvex adjustment costs lead plants to pursue generalized (S,s) decision rules with respect to capital; as a result, their individual investments are lumpy. In partial equilibrium, this yields substantial skewness and kurtosis in aggregate investment, though with differences in plant-level productivity, these nonlinearities are far less pronounced. Moreover, nonconvex costs, like quadratic adjustment costs, greatly increase the persistence of aggregate investment rates, yielding a better match with the data. ; In general equilibrium, aggregate nonlinearities disappear, and investment rates are very persistent, regardless of capital adjustment costs. While the aggregate implications of lumpy investment change substantially in equilibrium, the inclusion of fixed costs or idiosyncratic shocks yields an average distribution of plant investment rates that, in contrast, is largely unaffected by market-clearing movements in real wages and interest rates. Nonetheless, we find that to understand the dynamics of plant-level investment requires general equilibrium analysis.

Keywords: Investments; Productivity (search for similar items in EconPapers)
Date: 2004, Revised 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17) Track citations by RSS feed

Downloads: (external link)
http://www.philadelphiafed.org/research-and-data/p ... ers/2004/wp04-15.pdf (application/pdf)

Related works:
Journal Article: Idiosyncratic Shocks and the Role of Nonconvexities in Plant and Aggregate Investment Dynamics (2008) Downloads
Working Paper: Idiosyncratic shocks and the role of nonconvexities in plant and aggregate investment dynamics (2007) Downloads
Working Paper: Idiosyncratic Shocks and the Role of Nonconvexities in Plant and Aggregate Investment Dynamics (2007) Downloads
Working Paper: Idiosyncratic Shocks and the Role of Nonconvexities in Plant and Aggregate Investment Dynamics (2006) Downloads
Working Paper: Idiosyncratic shocks and the role of nonconvexities in plant and aggregate investment dynamics (2004) Downloads
Working Paper: Idiosyncratic shocks and the role of nonconvexities in plant and aggregate investment dynamics (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpwp:04-15

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Philadelphia Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2020-08-08
Handle: RePEc:fip:fedpwp:04-15